Economic activity in the Second District has shown signs of decelerating since the last report, though business contacts generally report that the labor market remains steady and strong. Manufacturers report widespread increases in input prices; they also note further deceleration in business activity and are a bit less optimistic about the near-term outlook. Retailers indicate that sales were on or close to plan in August, while prices were relatively flat. Tourism activity was mixed around generally robust levels: New York City hotels continue to report strong revenue growth, but Broadway theaters report that attendance, though still high, retreated in July and August.

Both new home construction and the home purchase market continued to slacken in July and August, but Manhattan's apartment rental market reportedly strengthened further. Office markets across the New York City metro area were steady to stronger in July and August while the market for industrial space was mixed. Activity in the securities industry activity is reported to have weakened across the board in July and August. Finally, bankers again report widespread slackening in loan demand, somewhat tighter credit standards, and little change in delinquency rates.

Consumer Spending
Retailers report that sales were on or slightly below plan in the first three weeks of August, with gains in same-store sales ranging from 1 to 5 percent, compared with a year ago. Retail contacts note that premium merchandise continues to sell better than lower-end lines but that furniture and other home goods continue to lag other merchandise categories. Retailers report that selling prices remain steady; inventories are said to be at favorable levels, though one large chain reports some shortages of high-end merchandise, which may have hindered sales slightly.

Tourism activity has been mixed but generally at a robust level since the last report. Manhattan-hotels report that business was strong in July, which is usually a relatively slow month; occupancy rates remained in the high 80s--virtually unchanged from a year ago--while room rates were up 9 percent from a year earlier. In contrast, Broadway theaters report that business weakened moderately in July and the first three weeks of August; attendance was down roughly 7 percent from a year earlier, while total revenue was up less than 3 percent.

Construction and Real Estate
The region's housing market has slackened further since the last report, with the notable exception of Manhattan's rental market. Housing permits have weakened markedly in recent months, with July particularly soft. Based on the first seven months of the year, single-family permits in the New York-New Jersey region are on track for their weakest year since 1996. Multi-family permits, though down in recent months, remain at relatively high levels. More currently, New Jersey homebuilders report that the inventory of homes on the market continued to increase in August, and that market psychology has worsened. Builders have begun advertising price reductions on new properties instead of merely offering concessions. Nonetheless, an industry expert notes an increasingly large gap between asking prices and offers, which has caused inventories to swell.

Manhattan's co-op and condo market slowed further in July and early August. The inventory of homes on the market is reported to have risen noticeably, and units are staying on the market for longer. Both the number of transactions and total sales volume were down from a year earlier in August; the high end continues to be the most active market. At the same time, Manhattan's rental market was characterized as increasingly robust in July and August, across the board, but especially at the high end of the market: The inventory of available units has continued to shrink, rents are up, and prospective renters are signing leases more quickly than in the recent past.

Commercial real estate markets across the New York City area have been steady to stronger since the last report. Between the end of June and late August, office vacancy rates declined and asking rent increased considerably in New York City, Fairfield County, Westchester County, and Long Island. In northern New Jersey, however, vacancy rates edged up while rents were little changed. Similarly, industrial vacancy rates fell in Long Island, Westchester, and Fairfield Counties, but rose to a more than ten-year high in northern New Jersey.

Other Business Activity
A securities industry contact reports a broad-based weakening in conditions since mid-year. Activity in capital markets has turned down in both primary and secondary markets--all major areas of issuance have weakened: debt, equity, derivatives. Trading revenue has also tapered off. A major New York City employment agency, specializing in office jobs, reports that there has been no discernible change in the job market since the last report, though August is a quiet month and difficult to use as a gauge. More broadly, non-manufacturing firms in the District report they have stepped up hiring activity in August, despite some reported slowing in overall business activity.

Based on our August Empire State Manufacturing Survey, respondents report further deceleration in business activity and continued widespread increases in input prices but only limited increases in selling prices. Manufacturers remain optimistic about the near-term outlook, though less so than in July.

Financial Developments
Small to medium-sized banks in the Second District report decreased demand for all types of loans since the last report--most notably in the commercial and industrial loan category, where 35 percent of bankers report a decrease and 18 percent report an increase. Ongoing widespread declines are also reported in refinancing activity.

Bankers report tightened credit standards for all loan categories except residential mortgages, where standards remained unchanged. In contrast, more than one in five bankers reports tightened credit standards for commercial mortgages, while no bankers report eased standards. Bankers report continued widespread increases in both deposit rates and loan rates across all categories. Delinquency rates were little changed across all loan categories, though a slight increase was reported for residential mortgages.